Talking about money with Mom and Dad

We are living in tough times.

The Market’s plunge may have damaged your parents’ nest egg for retirement.  It is wise to find out more about your parents’ financial future because at some point it could greatly affect your own. 

But, how do you do this effectively?  When is the appropriate time to get the family together to have a discussion like this?   There is definitely good reason for concern.   Questions surrounding your parents’ retirement funds and the fact that they have most likely been tapping into those funds is a conversation that is needed and difficult.

So, when is it time to have “the talk” and how do you go about it?  Crisis time is not the best time, therefore, making an effort sooner, than later, is the best advice.  Thinking clearly during a time of crisis is difficult at best, without adding other issues.  Remember there are many services and programs available should your parents’ financial resources become depleted. But, planning years in advance is the best way to avoid major complications when applying for assistance.

Unfortunately, many times parents feel their finances are a private matter.  They do not want to worry their kids and, in turn, may report that all is in order.  But, even if they say things are fine, the conversation needs to happen.  And, a delicate approach may be the best way to begin.

Start by describing how you are doing financially.  It is quite possible they are worried about your financial future, as well.  Then, you can open the door with these basic questions.

1.    How are your finances and do you have enough?  You might note that you have recently run the numbers on your own retirement to make sure that you are doing ok in this economy. 

2.    Will you be okay financially, given all that is happening with the economy?  You may want to ask about their financial advisor and see if you can attend a meeting with them.  If they are not willing to do that offer to take a second look at their own calculations.  This is an effective tool to discovering how long their money last.  A good tool to use is the T.Rowe Price retirement income calculator.

If there is indication that funds may run out soon, it is time to discuss solutions.  Several options noted in CNN Money are Immediate Annuity, which turns a portion of savings to a guaranteed stream of income or a reverse mortgage, which would let them draw on their home equity.

Other considerations revolve around the security of your parents’ money. Is their portfolio exposed to too much risk?  It is more difficult, given their age, to ride out the stock market downslides.  Balancing between cash and capitol preservation is imperative.  To address this subject, mention your own allocation and ask about theirs.  One quick method to roughly discover the percentage of stocks that should be in their portfolio is to subtract their age from 110. 

There are many things that happen in life that are unplanned.  Long-term care arrangements are one of them and the costs can be devastating.  Asking your parents how they have planned for this possibility is extremely important. It is also important to look at the costs of all types of care.  They may already have a Long-Term-Care Insurance policy.  If they do not, it may be costly to purchase one now.  It is reported that a 70 year old couple may pay $6,000 per year and prices go up with age.  But, it would make sense to purchase a plan if they have an estate worth preserving and can afford the premiums.

It is usually advised to use cash first, investments second and real estate last.  How your parents’ money is spent, gifted, and invested determines if programs such as Medicaid will be available to them.  Conversations like these open channels for future talks and an opportunity to feel a little more secure and relieved of some worry.  Your concern is honorable and based on the love and support you feel for one another.